How Your Credit Score Affects Auto Financing
You've done your leg work, settled on the perfect new ride, and are finally ready to start talking numbers. One thing you should consider doing before submitting that financial application is check your credit score.
Here at Faulkner Automotive Group, we help thousands of drivers throughout Harrisburg, Mechanicsburg, and Trevose find and finance the cars of their dreams. That starts with having a decent credit score—something we can help you figure out!
To learn how your credit score affects auto financing, check out our brief guide before scheduling an appointment!
What Is a Credit Score?
Your credit score is like a financial snapshot lenders use to determine how much debt you can safely manage. The higher your score, the more confidence they'll have to approve your auto loan.
Your credit will definitely fluctuate over your lifetime, so maintaining a solid score is important. In essence, your score can be broken down into five key areas:
Payment History
Do you consistently pay your bills on time? Is your credit report free from late payments or default notices?Credit Utilization
Ideally, month to month you'll want to carry over as little debt as possible. Aim to keep it below 30% of your overall credit limit.
Credit History Age
What's the age of your oldest credit account? What's the average age of your accounts? The older your credit history, the better your score tends to be.
Types of Credit
Do you have a mortgage or student loans? A diversified portfolio of debt is often a good sign that you're a low-risk borrower. On the other hand, having high amounts of credit card debt will tend to lower your credit score.
Hard Inquiries
These inquiries will appear on your credit report, often lowering your score by a few points. Too many hard inquiries can be a sign that you're attempting to acquire too much debt too quickly.
How Does My Credit Score Affect My Auto Loan?
Your credit score is based on a scale from 300 to 850. The closer your score is to 850, the easier it will be to secure the best interest rate percentage.
In simplest terms, your interest rate is the cost of borrowing the principal loan amount. The lower your credit score, the higher your interest rate. Conversely, the higher your credit score, the lower your interest rate.
Having a high credit score can mean the difference between saving hundreds of dollars to literally saving thousands of dollars over the life of your loan.
What If My Current Credit Score Is Less Than Ideal?
If you're currently in the process of rebuilding your credit, it doesn't necessarily mean you can't drive a new car. In fact, our finance team works every day with people whose scores are less than 850.
One strategy to keep your monthly payment lower is to increase the amount of your down payment. You also might consider extending the length of your loan or use a co-signer with a higher credit score.
Speak to Our Finance Team!
At Faulkner Automotive Group, we're committed to pairing you with the car, truck, or SUV of your dreams. So, if you're living near Harrisburg, Mechanicsburg, or Trevose, stop by any of our locations or contact us online today!